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Fed's Jackson Hole retreat not always restful

August 24, 2011 – WASHINGTON (Reuters) - Central bankers and economists from around the globe will once again flock to the Federal Reserve's annual gathering in Wyoming this week, and once again will meet against the backdrop of volatile markets and the prospect of further Fed support for a struggling U.S. economy.

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The conference in Jackson Hole is designed as a retreat among the serene vistas of the Grand Teton mountains, allowing policy makers to ponder the latest academic thinking without distractions. But in recent years they have been unable to ignore the economic carnage taking place beyond the picturesque valley.

The event has evolved into an annual check point on the state of play of efforts to contain the damage from one of the worst financial panics and deepest recessions in U.S. history. Last year Federal Reserve Chairman Ben Bernanke's speech laid the groundwork for the Fed's unprecedented $600 billion bond buying program to revive a sputtering U.S. economy.

Bernanke's address this Friday will be keenly watched for hints about whether the U.S. central bank is preparing to take further steps to buttress a crumbling recovery.

Following is a look back at the give speeches Bernanke has made at the conference since becoming Fed chairman.

2006

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Bernanke gives his first Jackson Hole speech as Fed chairman. Only two months earlier, the Fed had ended a series of 17 consecutive quarter-point interest rate increases that began in June 2004.

Analysts debated whether the Fed was hurting its inflation-fighting credibility by putting rates on hold too early, or whether bond market anticipation of slow growth in coming months was premature.

Bernanke, the Fed leader since January, looked to be comfortably carrying out the legacy of his much-admired predecessor, Alan Greenspan. He did not discuss the outlook for the economy or policy in a speech that reviewed the history of global economic integration as far back as the Roman Empire.

"The challenge for policymakers is to ensure that the benefits of global economic integration are sufficiently widely shared," he said.

2007

Financial storm clouds had begun to gather all year as the U.S. housing and credit bubbles burst, and by the time Bernanke spoke at the end of August, pressures were becoming acute.

Short-term funding strains escalated over the summer as ratings agencies downgraded bonds backed by subprime mortgages and Bear Stearns suspended redemptions from one of its funds. CNBC presenter Jim Cramer in early August lashed out on air at Bernanke and the Fed for failing to respond to financial market chaos, a widely discussed rant that came to symbolize the intensity of building pressure.

At a policy meeting in early August, the Fed said its predominant policy concern was that inflation would fail to moderate. But within days, it issued a statement saying it would stand ready to provide liquidity to keep financial markets from locking up, and shortly thereafter cut the discount rate it charges banks for emergency loans.

When the Fed chairman stepped to the podium that August, he joked that the year-ago selection of housing, housing finance and monetary policy as the conference theme had been right on target.

Although he devoted the bulk of his remarks to the history of the U.S. housing finance system, his opening discussion of the dire state of the state of housing and deterioration in financial markets provided some reassurances.

Markets took his remarks as a welcome acknowledgment of the tensions Cramer had described and saw them as a sign the Fed would act as needed to limit damage. Bernanke's own appearance of steadiness under pressure -- the first glimpse of his crisis-fighting demeanor -- also soothed worries and helped spur a stock market rally.

2008

By summer, the Bear Stearns bailout and a British government takeover of Northern Rock were history. The Fed held rates steady at its early August meeting, and it might have been possible to hope that from the perspective of market turmoil at least that the worst was over.

At the same time, soaring oil prices were fueling inflation concerns, and, in a sign of the cross currents facing policymakers, one Fed official dissented against holding rates at 2 percent, preferring instead to raise them.

The conference's theme, maintaining stability in a changing financial system, again proved apt.

Bernanke's comments that inflation would likely stay in check despite an uncertain outlook were taken to mean the Fed would not raise rates and spurred equity market gains.

In his speech, Bernanke recapped recent developments, including the special facilities the Fed had set up to ensure market liquidity.

Anticipating the debate over restructuring the financial system that would consume Congress for most of the following year, Bernanke spoke at length about regulatory structures and called for oversight that would be broad enough to spot system-wide risks, rather focusing myopically on problems at specific companies without taking broader stability into consideration.

2009

In 2009, the crisis in fact deepened. The government put Fannie Mae and Freddie Mac into conservatorship, investment bank Lehman Brothers went bankrupt despite government efforts to keep it afloat, and insurer AIG received a massive government bailout.

The effects of the panic on the economy were becoming painfully clear, too: U.S. employers shed 6.8 million jobs in the 12 months to that August. The Fed had embarked on an aggressive easing campaign. It cut benchmark interest rates to zero in December 2008, and followed up with purchases of hundreds of billions worth of mortgage-related and government debt to provide additional economic stimulus.

By late summer, however, the pace of job losses appeared to be moderating, and there were again reasons to believe a recovery might be underway. A March government examination of major banks sparked some confidence in the financial system, and stock markets were rallying.

Bernanke used the speech to give his clearest indication to date that he thought the recovery was at hand, although he warned it would be a slog.

"After contracting sharply over the past year, economic activity appears to be leveling out, both in the United States and abroad, and the prospects for a return to growth in the near term appear good," he said. "The economic recovery is likely to be relatively slow at first, with unemployment declining only gradually from high levels."

His comments boosted stock markets.

Immediately after the conference, President Barack Obama announced he would reappoint Bernanke to serve another four-year term as chairman at the Fed.

2010

When policymakers gathered a year ago, the recovery was sputtering. Gains early in the year had given way to fresh concerns as a European sovereign debt crisis that began in Greece spread to other countries on the periphery of the euro zone.

In a speech squarely devoted in its entirety to the outlook for the economy and policy, Bernanke nodded to the disappointingly slow recovery and said the Fed would act if needed to spur stronger growth.

While he stopped short of providing a clear signal of action, his speech laid the groundwork for the Fed's decision in November to launch a fresh $600 billion round of bond purchases. U.S. stocks initially slipped on his remarks, but major indexes closed up 1.7 percent.

"I think we would all agree that, for much of the world, the task of economic recovery and repair remains far from complete," Bernanke said.